Water Risks Impacting Supply Chains

Supply-chain professionals deal with all kinds of risks every day, from managing routine shipping delays to second-sourcing products when a natural disaster hits a key supplier.

But there are a number of other global issues that should compel supply chain experts and corporate senior management teams to rethink their risks and their potential impact.

One of them is the growing scarcity of stable water supplies. This came up frequently at the recent World Economic Forum (WEF) in Davos, Switzerland, where water shortage was named one of the top global risks for 2013, along with major systemic financial failure, climate change, global governance problems, and critical systems challenges.

It shouldn't come as too much as a surprise. According to the United Nations, water scarcity already affects every continent, with about 1.2 billion people, or almost one fifth of the world's population, living in areas of physical scarcity. The organization estimates that by 2025, the number of people living in regions with absolute water scarcity could climb to 1.8 billion.

On a global scale, the industry uses 20 percent of water resources, notes the Cousteau Society. And as Bloomberg reported, without available, affordable, and clean water, companies could see disruptions, higher commodity costs, and reduced earnings.

Given the data and growing awareness around this, it should come as no surprise that more watch groups are monitoring the world's water situation and groups like the WEF and the Pacific Institute, the U.N.'s Global Compact CEO Water Mandate, are encouraging more government, local, and corporate involvement in monitoring and managing water-related risks.

We're even seeing reports assessing US states' water footprint, much like we have seen report on carbon footprints. Click here for California's first water footprint, which according to the Pacific Institute provides "an important perspective on the interconnections between everyday activities and impacts to water resources -- both at home and around the world."

In light of many other environmental and sustainability initiatives we're seeing being implemented worldwide -- whether through legislation or through efforts being drawn up and executed voluntarily by corporate responsibility offices, I suspect we will see water management become a more pressing concern as the scale and frequency of water crises increase. Droughts in major parts of the world and the severe floods in Thailand two years ago have already proven how too little water or too much water can hurt business.

Will it escalate enough to become something supply chain managers will have to deal with fairly regularly? Will secondary sourcing strategies have to be put in place if factories located in water-risk areas run dry? Will teams of purchasers be dedicated to negotiating spot water prices the way they negotiate prices for gold or copper? I don't know. I'm hoping you can tell me.

Water is one of those utility services that many companies don't spend much time thinking about or wondering how its use, availabiility and sewage disposal could impact their businesses. It's also one of those services that could hurt a company were it to suddenly become unavailable or if environmentalist target the business.

Water has been traded for a long time now and you are right it should be factored into the business plans of major companies if they are smart. It is the cost of the transportation infrastructure that is the problem though.

Water is certainly becoming another precious commodity on our mother earth and I won't be surprised if "water" becomes a trade-able commodity on the commodity exchanges worldwide because of its scarcity. Governments and local bodies all over the world need to put in conscious effort to make sure that the industrial licenses be granted based upon the regions water footprint and the requirement of water of that particular industry

"water" is set to become part of the supplier benchmarking process soon.

I believe the supply chian and sourcing managers have to give importance to water levels just like the way other natural resources are assessed. Ability of any region to be able to supply the water needs of the individuals and industries shall be taken as a critical point to award any major sourcing opportunities.